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"Whatever they choose, Western companies—and governments—cannot be starry-eyed on this issue," Jessica Clarence of ASPI warns tech companies competing against Chinese counterparts. Whoever loses access to critical minerals for batteries like cobalt and lithium, "may also lose the energy—and tech—race."

In 1980 US PRESIDENT Jimmy Carter established the Carter Doctrine, asserting the right of the United States to protect strategic interests in the Middle East. The doctrine reflected the reality that oil sustained the US (and world) economy, and without it economies would collapse. ‘Energy geopolitics’—competition between states for energy security—reflected this worldwide resource race; a race as relevant today as it was in the 20th century.

Today we’re approaching an era where clean energy technology outstrips fossil fuels. This means that there will again be an energy race—but the essential component will be the humble battery. Western tech companies and their Chinese counterparts are competing, and right now Western tech companies are on their own, while Chinese companies have the full backing of their government.

Batteries are essential to all wireless electronic equipment. There are many battery technologies, but lithium-ion batteries are the most widely used in portable electronics. Raw materials account for up to 39% of a lithium battery’s cost. The hardest to obtain is cobalt, one of 27 ‘critical’ minerals. Though it comprises only 10–20% of a lithium-ion battery’s materials, cobalt costs six times more than nickel, the primary component. Cobalt is also ‘scarce’, making it a good case study in what tomorrow’s resource race might look like.

Cobalt has always been rare but several factors have made it even more difficult to access. First, it’s being used more and more. Though we may have reached peak smartphone, advances in renewable energy, electric vehicles, robotics and wireless gadgets depend on expected innovations in battery technology.

Reflecting this demand, it’s anticipated that the still-underdeveloped lithium-ion battery market will grow to US$81.65 billion by 2021. On the supply side, cobalt’s economics are complex, partly because it’s a byproduct of copper and nickel mining, and so dependent on fluctuations in those markets.

Second, and more importantly, political instability makes cobalt vulnerable to supply disruption. The Democratic Republic of Congo (DRC) supplies more than half of the world’s cobalt. Armed conflict plagues 10 of the country’s 26 provinces, and most Congolese earn less than US$1.25 a day. In February The Economist warned that civil war in Congo might resume. President Joseph Kabila presides over a state that Steve Reidquips is ‘neither democratic, nor a republic, nor in control of the Congo’.

On the other hand, according to South Africa’s Mandini Minerals, for now ‘if you want to become a player in the cobalt market, you need to be in the DRC’. A cursory glance at known cobalt reserves speaks to this point. DRC has 3.4 million tons, with Australia second at 1 million tons. That presents an opportunity for Australia, particularly since we can guarantee uninterrupted supply. But for tech companies, this doesn’t solve the immediate problem of rising demand and prices.

China recognises as much. It has piled investment into DRC even as Western mining companies cut jobs. China, the world’s leading producer and supplier of refined cobalt, imports most of its ore from the DRC. The risk of supply disruption became clear last September when DRC briefly ordered China’s Sicomines to stop exporting cobalt.

But the risk may be overstated. China pursues several stratagems to ensure supply, such as contributing peacekeepers and funding to the UN mission in DRC. In addition, President Kabila has personal ties to China.

China’s cobalt market domination has paid off in the battery market. Chinese battery companies are major players in a sector long dominated by Panasonic and Samsung. CATL is the fastest-growing battery producer in China and dominates the country’s electric vehicle market, which is the world’s largest. By 2020, CATL aims to be the world’s largest battery cell manufacturer.

To succeed, the company must secure supply. Recently it and other Chinese companies signed large contracts with suppliers, stealing a march on their Western competitors. For example, last month a Chinese supplier of battery chemicals signed a deal to buy one-third of Swiss miner Glencore’s cobalt production.

Some Western tech firms are looking elsewhere. Tesla proposes buying only North American cobalt (partially in response to human rights concerns). But the US and Canada produce only 4% of the world’s cobalt, too little to meet Tesla’s ambitions.

Vertical integration is another alternative—gaining control over the supply line, as Alcoa did with aluminium. And Apple wants to buy cobalt directly from Congolese miners. But this is risky, not least because tech companies have little experience with mining and conflict zones.

Whatever they choose, Western companies—and governments—cannot be starry-eyed on this issue. Raw material extraction is the ugly side of technology development, as mining operations and oil extraction across the developing world has shown. Even so, cobalt and other critical minerals will continue to be mined. Leaving lithium-ion batteries aside, cobalt is a ‘high-speed, high-strength wear-resistant alloy’ that’s critical to aerospace and military technology. It can even be used to make bombs.

So if the West loses access to critical minerals like cobalt, it may also lose the energy—and tech—race.

In the not-too-distant future, battery technology will power the world

MUCH LIKE OIL has dominated energy geopolitics, critical minerals like cobalt—essential for batteries—will dominate tomorrow’s race for energy security. That requires that governments think about strategies to secure access to these minerals, just as they did with oil.

Thus far, Western countries have trusted in the invisible hand of free markets. But this hasn’t been working. Scarcities in critical minerals—caused by high demand and supply problems—is already affecting consumers such as tech companies in the supply chain ‘downstream’. The effects could spread as energy grids and transport increasingly rely on ‘green’ electrification—which relies on mineral availability.

As countries increasingly rely on battery tech for energy needs, uninterrupted access to critical minerals will become essential. At that point, the logic of energy geopolitics—where control of resources becomes a coercive tool—could become a factor. In 2010 Japan—a big manufacturer of consumer electronics—experienced a taste of that kind of future resource competition when China deliberately cut export quotas for rare earths.

And even those countries that possess deposits of critical minerals cannot simply rely on free markets. Resource-rich countries rarely find it economically viable to produce, refine and manufacture products from domestically mined minerals. As The Economistpointed out in a recent article, the idea that Wakanda—the homeland of Marvel Comics superhero Black Panther—successfully refines ‘vibranium’ to achieve technological supremacy and energy self-sufficiency is pure ‘fantasy and wish-fulfilment … it is as if Norway had a monopoly on oil, petrochemicals and plastics’.

Rather than rely on the free market, Western governments could adopt the Carter Doctrine approach. Just as the US government made securing access to oil a cornerstone of US foreign policy, governments could make gaining and maintaining access to critical minerals a key policy objective.

In March for example, China tried to buy a 32% stake in Chilean lithium-mining company SQM SQM_pb.SN. The Chilean government has asked anti-trust regulators to block the move, arguing that it would give China an unfair global advantage in battery technology development. If the Chilean government fails, then China will control 70% of the world’s lithium supply. For countries concerned about their future energy resilience, such an outcome should be unacceptable.

But the Carter Doctrine approach has costs. Witness the bloody history of oil: major oil producer Saudi Arabia is a close US ally despite its terrible human rights record. And oil was probably an important factor in the decision to invade Iraq.

The concentration of critical minerals in dangerous and unstable locations—such as the Democratic Republic of Congo—is likely to create trade-offs that would be just as unpalatable. Seeking energy security in that way means using hard power and potentially implicitly condoning the actions of dictators.

There’s a third option: domestic geological exploration. That approach gives states control over their own requirements and insulates them from supply disruptions. And it wouldn’t require that governments get their hands dirty. Instead, they could create incentives for mining companies.

Second, government can provide better mapping of deposits. Critical minerals are found in every country, but there’s not been a lot invested in trying to find them. Sediment and rock hides deposits, making mapping difficult and discovery expensive. As a result, mineral deposit mapping is incomplete.

One senior policymaker from the Energy and Minerals Division in the United States Geological Survey noted that the US has better maps of Afghanistan’s geology than it does of its own geology.

Third, governments can set the regulatory environment and give companies incentives to pursue riskier investments that don’t have immediate pay-offs. Left to their own devices, companies may wait for an upswing in prices before looking for critical minerals. But the lag between discovery and production can be more than a decade. In addition, the costs of discovery are going up. One Australian mining report found that discovery costs this decade are 50% higher than in the last decade.

So governments need to think well ahead about their needs in the face of critical mineral scarcity and find ways to encourage exploration and development even in slow periods. US President Donald Trump’s executive order last December recognised as much. It ordered the development of a national strategy by 18 June 2018 to define critical minerals, speed up domestic discovery efforts and improve the regulatory environment for critical mineral exploration.

Do these three things and resource-rich countries like Australia will have big economic opportunities. Australia only just got into the cobalt game and has already signed a major deal with a South Korean battery maker—contingent on production starting before 2020. But it’s unclear whether such production targets are possible, and whether the Australian public would be willing to accept the significant environmental costs that such mining incurs.

This is where an informed democratic debate is needed. Today out-of-sight mining companies in poorly regulated areas of the world bear the environmental, moral and political costs of rich-world purchases of consumer electronics.

If Western countries are going to ramp of domestic production of critical minerals, their governments need to explain that we cannot build solar panels or run electric vehicles without digging up the earth. And then we’ll need to have a difficult, informed and realistic conversation about the opportunities, costs and opportunity costs that a battery-powered future holds.

Jessica Clarence is a research intern at the Australian Strategic Policy Institute. Her article is co-published with The Strategist. Image courtesy Pixabay user darkmoon 1968.